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Failure shows SA Companies should reconsider African strategy

An edited version of this article appeared in the daily weekday ed of Business Day (South Africa) on 18/10/2021:

There has been a flurry of activity by South African companies on the continent recently.  From Vodacom’s successful bid as minority partner for the Ethiopian telecommunications license to the Memorandum of Cooperation (MoC) between South African Airlines (SAA) and Kenyan Airways (KQ) that is intended to sow the seed for a pan-African airline.   In fact, South African companies have made great inroads into Africa over the last two decades or so and seem to dominate the African business space.  According to a 2018 report by the Boston Consulting Group, South African companies make up 32 out of the 75 African multinationals active on the continent.  And according to a recent 2021 fDi Intelligence report, a leading research agency and a division of the Financial Times, South Africa is the second biggest investor on the continent from Africa or the Middle East, behind only the UAE. 

But there is another side to this unquestionable success, one punctuated by regular missteps and blunders that have been repeated to the great detriment of a significant number of South African companies in Africa. 

And while South Africa is primed to take maximum advantage from the nascent African Continental Free Trade Area agreement (AfCFTA), meant to reduce barriers to trade across a large swathe of the continent’s economy, these faults do not collectively bode well for South African companies.  They could even exacerbate AfCFTA’s many weaknesses and ultimately help consign it to the dustbin of history if not addressed. 

In announcing their capitulation on the continent recently, both Massmart and Shoprite cited the usual suspects for many a private investor in Africa, that of currency fluctuations, high inflation and low commodity prices.  For Ken Gichinga though, chief economist at Mentoria Economics, a leading market researcher in East Africa, the problems that Massmart and Shoprite faced were far more localised and down to a non-existent marketing strategy there.  “I don’t think they invested heavily in social media influencers, activations, vouchers and stuff like that,” he said, “If you look at the likes of Naivas or Carrefour or Nakumatt, they take a much bigger mind share in the public eye,”  speaking of the other main players in the East African retail market. 

     In fact, such miscalculations mask deeper-rooted problems for many South African companies in general.  Many choose to free-ride on the perceived crest of good feeling that the “Mandela effect” brought with it way back in the 90s.  That perception of “a country with boundless possibilities,” as Gichinga described it, “where there was a sense of inspiration and aspiration towards South Africa.”  Many companies became lazy in their focus on local market trends and tastes, applying a one-shoe-fits-all commercial policy on the continent believing that the “Made in South Africa” brand was enough. 

     It is this inflexibility that has caused many in Africa, and certainly in East Africa, to slowly turn away from some South African products. “I think that the centralisation of operations in South Africa has prevented many brands from being nimble, nimble to matters of pricing, nimble to tastes,” Gichinga said, “if that can be devolved to countries in Africa, I think South African brands will be far more dynamic and far more relevant to the local market.”

     This unbending attitude also has its roots in the common perception amongst companies in South Africa of being global players and applying rigid international rules to the continent.  There have been suggestions of lingering apartheid-era attitudes towards Africa that continue to seep into the cooperate consciousness too.  Where the pivot towards Africa was forced upon South African companies following a string of failed expansions in the international market from the likes of Woolworths to Sasol for example.  Many had to re-evaluate and at least partially re-focus their attention to their own immediate neighbourhood where they realised they had a large comparative advantage.   But Gichinga is not convinced by this.  “It’s not even about maybe apartheid, but more just not really seeing much economic possibility [in Africa] compared to what you can do in China and Argentina and Brazil.” 

     There have been some notable success stories though, where South African companies have understood local cultural and social trends.  And there is no better example of this than Multichoice.  “They’ve been able to really deepened their relationship with the local scene and I think that is really the future,” Gichinga stated, “The ability to really dig deep in terms of understanding the sociology, the culture, the economy, the pricing.  All these things are really very important.”

     Other South African companies have gone down the road of cooperation with local companies, pooling resources to achieve economies of scale and in exchange for local market access.  The newly-signed MoC between SAA and KQ is a good example.  Borne out of severe commercial stress at both carriers, nevertheless the pivot towards the continent is forward-thinking that makes economic sense for both and anticipates a greater flood of intra-African airline traffic, especially under AfCFTA.  Mr Simon Newton Smith, Commercial Executive at SAA highlighted just how much under-capacity there might be in the African market, making up 17% of the global population but only 2-3% of its passenger and cargo traffic.  “African airlines are uniquely placed to solve this African problem,” he said.  “In a global industry dominated by scale and where African airlines may find scale difficult to achieve, focusing on the African opportunity is a globally relevant niche.”

     While the pandemic has certainly focused minds on regionalising supply chains, there is a long and arduous road ahead if AfCFTA is to become a workable reality.  And certainly one of the biggest potential pitfalls is perceived unfair competition that will see countries with greater  economic clout flood local markets that are hardly prepared, damaging local competitors and entrepreneurs in the process.  This will only be exacerbated by aloof South African cooperate policies that fail to take into consideration local market conditions.  A more Afrocentric business approach that has been properly researched and is elastic to local conditions could pay large dividends in the long-run.  Where direct competition is softened by cooperation in local markets.  And corporate arrogance is supplanted by a greater understanding in the wide and varied business affairs on the continent.

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